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Herger's Proposal to Reform Medicare

Reducing federal health spending will play an important role in any long term deficit reduction plan debated over the next year. As lawmakers look to reform and put federal health programs on a more sustainable path for future generations, we've highlighted before that there is no shortage of options. Earlier this week, retiring House Ways and Means Subcommittee on Health Chairman Wally Herger (R-CA) introduced “The Save and Strengthen Medicare Act” (H.R. 6645), adding to the menu of Medicare reform options lawmakers can consider.

Rep. Herger’s bill includes a number of policies we’ve seen before, but with a few new twists. For example, similar to the Fiscal Commission’s recommendation, it would reform traditional Medicare by creating a unified deductible for Medicare Part A and Part B, a uniform coinsurance rate of 20 percent, and an out-of-pocket limit. Like other proposals we have seen by Congressional Republicans, it introduces competitive bidding and premium support into Medicare. The premium subsidy would not be limited to a specific growth rate but instead tied to the lowest bid after 2021. Seniors under 135 percent of the federal poverty line would receive enhanced contributions whereas those with higher incomes would receive a less generous premium subsidy. Herger's proposal differs in that it is the first premium support proposal that would create a three-tiered benefit structure under which plans would be categorized based on their cost sharing level. It also would create new optional health individual retirement accounts where up to two percent of pre-tax earnings (up to $2,500 for singles and $5,000 for couples, adjusted for inflation) can be saved for use once an individual retires.

As another twist on a familiar policy, the bill proposes a "preferred Medicare age" which would gradually increase the Medicare eligibility age to 67, but provide an option for seniors to continue to join at age 65. Similar to Social Security early retirement, those who chose to join Medicare at 65 would pay a higher premium share so that their lifetime benefit would be actuarially equal to those who waited to enroll at the preferred age of 67. After 2026, the preferred age is indexed to longevity. The bill would also cut in half the Medicare payroll tax for workers between the ages of 65-67 and eliminate the tax for workers 68 and older, providing an additional incentive to delay retirement and enroll in Medicare later.

While many of the bill’s policies would likely yield savings to the federal government, it also includes some policies that would increase federal spending. For example, it would repeal the Independent Payment Advisory Board (IPAB) which we’ve discussed the merits of many times before on this blog. At the very least, IPAB would serve as a useful backstop to ensure that Medicare savings materalize and make sure that Medicare growth is kept in line.

Overall, Rep. Herger’s bill is a valuable contribution to the debate on how best to reform and reduce federal health spending in the long term. As one of the largest drivers of future deficits, lawmakers would be wise to consider proposals such as these that tackle rising health care costs.